Annual Report 2016 - Bendigo Bank · Annual Report 2016. Annual Report Heathcote & District...

ABN 44 112 376 986

Heathcote & DistrictFinancial Services Limited

Heathcote & District Community Bank®Branch

Annual Report2016

Annual Report Heathcote & District Financial Services Limited 1

Chairman’s report 2

Manager’s report 4

Directors’ report 5

Auditor’s independence declaration 9

Financial statements 10

Notes to the financial statements 14

Directors’ declaration 36

Independent audit report 37

Contents

Annual Report Heathcote & District Financial Services Limited2

For year ending 30 June 2016

This is my first report as Chair of the Board for Heathcote & District Financial Services Limited (HSDSL) and my

very first task, in this report, is to thank Barry Cail, the previous Chair, for his outstanding service to HDFSL and

the community of Heathcote. Thanks is also due for his steady hand in guiding the growth and development of the

Community Bank® company over ten plus years. The entire Board is very pleased that Barry has continued as a

Director as his experience and methodical approach to issues is invaluable.

Simon Osicka, who has been a Director for over five years, also retired at the end of the financial year. Simon brought a

high degree of discipline to the deliberations of the Board and we thank him for his contribution.

A solid year- but with headwinds apparent

The financial result for the year was solid. Profit after tax was $71,931 which was slightly ahead of expectations

and 20.54% up on the previous year. This result was after contributing $90,569 to the community via grants

and transferring $113,000 to the Community Enterprise Foundation™ for use in future projects that advance the

community.

The profit allows the Directors to feel confident in declaring a final, fully franked dividend of 7.5c per share.

Directors advise that the year ahead is unlikely to generate the same level of profit. All banks are facing a regime of

shrinking margins driven largely by a turbulent global economy and historically low interest rates. To date, Community

Bank® branches operating in partnership with Bendigo Bank have been somewhat insulated from these factors, but

the revenue share model with Bendigo Bank has changed from 1 July 2016 and we now bear the full impact of these

pressures.

Directors have determined that this change in our income stream is best addressed by careful cost management of our

core business whilst at the same time pushing for sustained growth, primarily through our committed investment into

Nagambie.

Nagambie is a community of similar size and characteristics to Heathcote and is serviced by only one other bank.

During the year the opportunity arose for HDFSL to take full control of our operations in Nagambie and we are using

this to develop our presence in the town and community in a way similar to Heathcote. This is aimed at putting us on

a path to achieving similar levels of customer base over time as in Heathcote. The overall goal is to achieve a higher

level of revenue on a manageable increase in cost base. This is a long term strategy and results build over time.

Our people

Our team of people consists of dedicated, well-trained and committed branch staff both in Heathcote and Nagambie.

It is this team that is the face of the branches and whose delivery of exemplary customer service ensures we have a

loyal and satisfied customer base in Heathcote and a growing customer base in Nagambie. We thank all the staff for

their work over the 2015/16 financial year.

The team is also made up of volunteer Directors who devote their time to overseeing the business strategy and

operations of the bank. As Chair, I am privileged to be able to work with such a group.

Our community

The driving aim of all Community Bank® branches and HDFSL in particular is to earn profits that can be invested back

to the benefit of the community. This is achieved by paying dividends to the investors who support the Community

Bank® branches and by delivering sponsorship and grant funds to worthy community causes.

Over the past financial year the Community Bank® company was privileged to make over 70 grants to 60 community

groups in Heathcote, Nagambie and surrounding districts. These amounts totaled over $90,000.

Chairman’s report


The range of support included a simple pie warmer to allow one group to host lunches for local residents to a

significant commitment to the planned walking and cycling trails around the township.

The Board also notes that work on the redevelopment of the Barrack Reserve will commence shortly and this

Community Bank® company has recently made a commitment to this project of over $150,000.

The Board and staff are committed to the continued success of HDFSL and look forward to serving the shareholders,

customers and community into the future.

Stephen Trompp

Chair

Chairman’s report (continued)


For year ending 30 June 2016

It is with great honour that I present my second Manager’s report for the Heathcote & District Community Bank®

Branch Annual Report.

The 2015/16 financial year ended with our branch team finishing with a mixture of results. Our overall growth

performance in lending was well below budget with a growth amount of $996,000. On a positive note, our deposit

growth exceeded target at $3.461 million and we reached all three main insurance targets for the first time in our

branch’s history, an achievement we were all particularly proud of.

The Board and all of our staff including Mobile Relationship Manager Les Owens, Teri Johnson, Krystal Eickert, Joel

Condon, Jo Jacobs and Marlene Troy have contributed significantly to what I still deem to be a successful 2015/16

financial year and I want to thank them all for their commitment to our business.

We farewelled Joel Condon earlier in the year as he departed for the Bendigo Bank branch Mitchell Street, Bendigo.

This promotion was very much deserved and we wish Joel all the best for the future. Joel’s departure saw us employ

local Marlene Troy in his place. Marlene has been a great appointment and has prospered significantly in her short

time at the branch. Welcome Marls.

At 30 June 2016, our overall footings stand at $111 million, an increase of $4.6 million on the figure at the same time

last year. This result happened in a time when branch customers were traditionally paying off debt and with deposit

interest rates so low and term deposits being less attractive than usual, this makes the result even more impressive.

Our lending growth was also affected by our higher than average amortisation rate, something we can’t do anything

about due to the record low interest rates. The positive fact regarding our amortisation rate is that it’s allowing our

customers to pay off their debt quicker and therefore putting them into a better financial position.

The team and I are committed to ensuring we continue to provide an excellent level of banking services to the

community as well as ensuring our continued growth allows the Community Bank® branch to continue to contribute

much needed funding via grants, sponsorships and dividends back into this great community.

Thanks to our branch’s Business Banker Simon Perry and our financial planning team who contributed to our overall

team performance.

The 2015/16 financial year saw the departure of our Nagambie agents, Mick and Joanne Mitchell. I would like to thank

Mick and Jo for their efforts over the past six years and wish them all the best for the future. I am excited to advise

that we have employed two new staff to service our Nagambie Agency. Kerri Ackehurst and Jacqui Scorgie have now

commenced their employment with our business and have fitted in extremely well. Both have prior banking experience

and I have little doubt they will pick up and learn the role very quickly. Nagambie is a thriving community with many

opportunities which we look forward to exploring further.

It is my aim to ensure that we work together as a cohesive unit and have clear goals and plans in place for the coming

year, which will lead to, continued success.

My thanks also go to our outgoing Regional Manager Wayne Tobin and his support team for their assistance. Bendigo

Bank recently conducted a restructure of the Head Office support teams and as a result of this, we are now in a

different region and have two new Senior Managers Jodie McLeod and John Sirolli. This new team have provided

excellent daily support to our Community Bank® branch and our success has a lot to do with their continued support.

Finally, it’s a big thank-you to our valued customers for everything they contribute to our success. Without them we

wouldn’t be here making such a positive impact in the community. Our customers are greatly valued and I want to

thank each and every one for the support they give us.

Michael Prowse

Branch Manager

Manager’s report


Directors’ reportFor the financial year ended 30 June 2016

Your directors submit the financial statements of the company for the financial year ended 30 June 2016.

Directors

The names and details of the company’s directors who held office during or since the end of the financial year:

Stephen Roger Trompp

Chairman

Occupation: Retired

Qualifications, experience and expertise: 30 years experience in the financial services industry. Including senior

management positions in investment banking and publicly listed organisations. Particular emphasis on financial

product design, development and marketing. A local resident in Heathcote for over six years and involved in

Heathcote Tourism and Development and Advance Heathcote.

Special responsibilities: Chairman

Interest in shares: 1,700

Ian George Rohde

Treasurer

Occupation: Retired

Qualifications, experience and expertise: Ian was formerly Managing Director of Warakirri Asset Management

which manages investments for superannuation funds and charities. He worked for more than 25 years in the

investment industry following a period of 11 years with the former State Electricity Commission of Victoria in a

variety of treasury, accounting and middle management roles. Ian has previously been on Boards of the following

charities: Jigsaw Foundation (associated with the Royal Children’s Hospital in Melbourne), Old Colonists Association

of Victoria and Advisory Council for Children with Impaired Hearing (Vic).

Special responsibilities: Treasurer

Interest in shares: Nil

Barry Maxwell Cail

Director

Occupation: Businessman

Qualifications, experience and expertise: Long experience in the Community Bank® system, businessman with

experience in small business operation, journalist with long experience in public relations and marketing.

Special responsibilities: Nil


Gregory Ian Speirs

Director

Occupation: Retired

Qualifications, experience and expertise: Local Government, Lions Club Member (Current President, Past Treasurer

and Secretary), Bowls Club Member (Past President and Secretary), Licensed Surveyor, Town Planner and Justice of

Peace.

Special responsibilities: Sponsorship/ Marketing



Directors’ report (continued)

Directors (continued)

Rachel Alice Patterson

Director

Occupation: Director/Principal Paterson PR

Qualifications, experience and expertise: Public relations, events, marketing, communications, community

engagement and community development. Rachel has also been involved in regional retail and tourism

development, event management and professional writing.



Colin Bernard Stobaus

Director (Appointed 9 May 2016)

Occupation: Retired

Qualifications, experience and expertise: Registered building practioner. President of Heathcote Golf club and a

previous director of a Community Bank® branch.



Simon Osicka

Director (Resigned 4 July 2016)

Occupation: Wine Maker

Qualifications, experience and expertise: Currently working for a small privately owned wine company. Previous

experience in various management roles in a large publicly listed (both ASX and NYSE) companies.



Megan Louise Anderson

Director (Resigned 9 January 2016)

Occupation: Bookkeeper/Administration

Qualifications, experience and expertise: Completed Bachelor of Business/Bachelor of Computing (Double Degree)

at Latrobe University Bendigo. Employment history include: 7 years veterinary Nursing at two Bendigo Veterinary

Clinics, 5 years at Lead on Australia in Administration, Finance, Funding and Project Consulting roles. Currently

Bookkeeper for Wild Duck Creek Estate Winery. 2008 Employee of the Year - Bendigo Business Excellence Awards.

Community involvement includes: 4 years volunteer work with RSPCA Bendigo, currently a member of the Reference

Group for ‘Our Shed’ Community Resource Centre, Eaglehawk. Formerly a Board Member for Lead on Bendigo Inc.



Directors were in office for this entire year unless otherwise stated.

No directors have material interests in contracts or proposed contracts with the company.

Company Secretary

The company secretary is Hannah Thomson. Hannah was appointed to the position of secretary in October 2012.

Hannah has extensive experience in areas of managing accounts and customer service.

Principal Activities

The principal activities of the company during the financial year were facilitating Community Bank® services under

management rights to operate a franchised branch of Bendigo and Adelaide Bank Limited.

The company assisted with the fit out of the new premises for the Nagambie Agency which opened in December 2014.



Operating results

Operations have continued to perform in line with expectations. The profit of the company for the financial year after

provision for income tax was:

Year ended 30 June 2016$

Year ended 30 June 2015$

71,931 59,675

Dividends

Year ended 30 June 2016

Cents $

Dividends paid in the year 7.5 44,618

Significant changes in the state of affairs

In the opinion of the directors there were no significant changes in the state of affairs of the company that occurred

during the financial year under review not otherwise disclosed in this report or the financial statements.

Events since the end of the financial year

There are no matters or circumstances that have arisen since the end of the financial year that have significantly

affected or may significantly affect the operations of the company the results of those operations or the state of affairs

of the company, in future years.

Likely developments

The company will continue its policy of facilitating banking services to the community.

Environmental regulation

The company is not subject to any significant environmental regulation.

Directors’ benefits

No director has received or become entitled to receive, during or since the financial year, a benefit because of a

contract made by the company, controlled entity or related body corporate with a director, a firm which a director is a

member or an entity in which a director has a substantial financial interest.

Indemnification and insurance of directors and officers

The company has indemnified all directors and the manager in respect of liabilities to other persons (other than the

company or related body corporate) that may arise from their position as directors or manager of the company except

where the liability arises out of conduct involving the lack of good faith.

Disclosure of the nature of the liability and the amount of the premium is prohibited by the confidentiality clause of the

contract of insurance. The company has not provided any insurance for an auditor of the company or a related body

corporate.



Directors’ meetings

The number of directors’ meetings attended by each of the directors of the company during the year were:

Board Meetings Attended

Eligible Attended

Stephen Roger Trompp 13 11

Ian George Rohde 13 11

Barry Maxwell Cail 13 13

Gregory Ian Speirs 13 10

Rachel Alice Paterson 13 8

Colin Bernard Stobaus (Appointed 9 May 2016) 2 2

Megan Louise Anderson (Resigned 9 January 2016) 8 4

Simon Osicka (Resigned 4 July 2016) 13 12

Proceedings on behalf of the company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on

behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking

responsibility on behalf of the company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237

of the Corporations Act 2001.

Non audit services

The company may decide to employ the auditor on assignments additional to their statutory duties where the auditor’s

expertise and experience with the company are important. Details of the amounts paid or payable to the auditor

(Andrew Frewin Stewart) for audit and non audit services provided during the year are set out in the notes to the

accounts.

The board of directors has considered the position and is satisfied that the provision of the non-audit services is

compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The directors are satisfied that the provision of non-audit services by the auditor, as set out in the notes did not

compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services have been reviewed by the board to ensure they do not impact on the impartiality and

objectivity of the auditor

• none of the services undermine the general principles relating to auditor independence as set out in APES 110

Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a

management or a decision-making capacity for the company, acting as advocate for the company or jointly sharing

economic risk and rewards.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set

out on page 9.

Signed in accordance with a resolution of the board of directors at Heathcote, Victoria on 8 September 2016.

Stephen Roger Trompp,

Chairman


Auditor’s independence declaration


Financial statementsStatement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016

Notes 2016 2015 $ $

Revenue from ordinary activities 4 984,065 921,169

Employee benefits expense (447,930) (435,772)

Charitable donations, sponsorship, advertising and promotion (156,807) (138,523)

Occupancy and associated costs (58,887) (49,883)

Systems costs (26,669) (23,834)

Depreciation and amortisation expense 5 (25,702) (26,669)

Finance costs 5 - (379)

General administration expenses (165,986) (160,785)

Profit before income tax expense 102,084 85,324

Income tax expense 6 (30,153) (25,649)

Profit after income tax expense 71,931 59,675

Total comprehensive income for the year 71,931 59,675

Earnings per share for profit attributable to the ordinary

shareholders of the company: ¢ ¢

Basic earnings per share 22 12.09 10.03

The accompanying notes form part of these financial statements.


Financial statements (continued)

Balance Sheet as at 30 June 2016

Notes 2016 2015 $ $

ASSETS

Current Assets

Cash and cash equivalents 7 355,768 388,314

Trade and other receivables 8 53,960 39,741

Total Current Assets 409,728 428,055

Non-Current Assets

Property, plant and equipment 9 91,078 69,399

Intangible assets 10 62,649 76,458

Deferred tax asset 11 - 983

Total Non-Current Assets 153,727 146,840

Total Assets 563,455 574,895

LIABILITIES

Current Liabilities

Trade and other payables 12 14,733 85,982

Current tax liabilities 11 6,284 4,411

Borrowings 13 7,801 -

Total Current Liabilities 28,818 90,393

Non-Current Liabilities

Deferred tax liabilities 11 6,694 -

Borrowings 13 16,128 -

Total Non-Current Liabilities 22,822 -

Total Liabilities 51,640 90,393

Net Assets 511,815 484,502

Equity

Issued capital 14 558,357 558,357

Accumulated losses 15 (46,542) (73,855)

Total Equity 511,815 484,502




Statement of Changes in Equity for the year ended 30 June 2016

Issued Accumulated Total capital losses equity $ $ $

Balance at 1 July 2014 558,357 (88,912) 469,445

Total comprehensive income for the year - 59,675 59,675

Transactions with owners in their capacity as owners:

Shares issued during period - - -

Costs of issuing shares - - -

Dividends provided for or paid - (44,618) (44,618)

Balance at 30 June 2015 558,357 (73,855) 484,502

Balance at 1 July 2015 558,357 (73,855) 484,502

Total comprehensive income for the year - 71,931 71,931

Transactions with owners in their capacity as owners:

Shares issued during period - - -

Costs of issuing shares - - -

Dividends provided for or paid - (44,618) (44,618)

Balance at 30 June 2016 558,357 (46,542) 511,815




Statement of Cash Flows for the year ended 30 June 2016

Notes 2016 2015 $ $

Cash flows from operating activities

Receipts from customers 1,056,133 1,007,444

Payments to suppliers and employees (953,289) (882,414)

Interest received 7,530 11,119

Interest paid - (379)

Income taxes paid (20,603) (11,646)

Net cash provided by operating activities 16 89,771 124,124

Cash flows from investing activities

Payments for property, plant and equipment (33,572) (18,463)

Payment of intangible assets (68,056) -

Net cash used in investing activities (101,628) (18,463)

Cash flows from financing activities

Dividends paid (44,618) (44,618)

Proceeds from borrowing 24,659 -

Repayment from borrowing (730) -

Net cash used in financing activities (20,689) (44,618)

Net increase/(decrease) in cash held (32,546) 61,043

Cash and cash equivalents at the beginning of the financial year 388,314 327,271

Cash and cash equivalents at the end of the financial year 7(a) 355,768 388,314



Notes to the financial statementsFor year ended 30 June 2016

Note 1. Summary of significant accounting policies

a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards

and Interpretations issued by the Australian Accounting Standard Boards and the Corporations Act 2001. The company

is a for-profit entity for the purpose of preparing the financial statements.

Compliance with IFRS

These financial statements and notes comply with International Financial Reporting Standards (IFRS) as issued by the

International Accounting Standards Board (IASB).

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires

management to exercise its judgement in the process of applying the company’s accounting policies. These areas

involving a higher degree of judgement or complexities, or areas where assumptions and estimates are significant to

the financial statements are disclosed in note 3.

Historical cost convention

The financial statements have been prepared under the historical cost convention on an accruals basis as modified by

the revaluation of financial assets and liabilities at fair value through profit or loss and where stated, current valuations

of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets.

Comparative figures

Where required by Australian Accounting Standards comparative figures have been adjusted to conform with changes in

presentation for the current financial year.

Application of new and amended accounting standards

The following amendments to accounting standards issued by the Australian Accounting Standards Board (AASB)

became mandatorily effective for accounting periods beginning on or after 1 July 2015, and are therefore relevant for

the current financial year.

• AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031

Materiality.

• AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian

Groups with a Foreign Parent.

None of the amendments to accounting standards issued by the Australian Accounting Standards Board (AASB) that

became mandatorily effective for accounting periods beginning on or after 1 July 2015, materially affected any of the

amounts recognised in the current period or any prior period and are not likely to affect future periods.

The following accounting standards and interpretations issued by the Australian Accounting Standards Board (AASB)

become effective in future accounting periods.


Notes to the financial statements (continued)

Note 1. Summary of significant accounting policies (continued)

a) Basis of preparation (continued)

Application of new and amended accounting standards (continued)

Effective for annual reporting periods beginning on or after

AASB 9 Financial Instruments, and the relevant amending standards. 1 January 2018

AASB 15 Revenue from Contracts with Customers and AASB 2014-5

Amendments to Australian Accounting Standards arising from AASB 15.1 January 2018

AASB 16 Leases 1 January 2019

AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for

Acquisitions of Interests in Joint Operations.1 January 2016

AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of

Acceptable Methods of Depreciation and Amortisation.1 January 2016

AASB 2014-6 Amendments to Australian Accounting Standards – Agriculture:

Bearer Plants.1 January 2016

AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method

in Separate Financial Statements.1 January 2016

AASB 2014-10 Amendments to Australian Accounting Standards – Sale or

Contribution of Assets between an Investor and its Associate or Joint Venture.1 January 2018

AASB 2015-1 Amendments to Australian Accounting Standards – Annual

Improvements to Australian Accounting Standards 2012-2014 Cycle.1 January 2016

AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure

Initiative: Amendments to AASB 101.1 January 2016

AASB 2015-5 Amendments to Australian Accounting Standards – Investment

Entities: Applying the Consolidation Exception.1 January 2016

AASB 2016-1 Amendments to Australian Accounting Standards - Recognition of

Deferred Tax Assets for Unrealised Losses.1 January 2017

AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure

Initiative: Amendments to AASB 107.1 January 2017

The company has not elected to apply any accounting standards or interpretations before their mandatory operative

date for the annual reporting period beginning 1 July 2015. Therefore the abovementioned accounting standards or

interpretations have no impact on amounts recognised in the current period or any prior period.

Economic dependency - Bendigo and Adelaide Bank Limited

The company has entered into a franchise agreement with Bendigo and Adelaide Bank Limited that governs the

management of the Community Bank® branch at Heathcote, Victoria.

The branch operates as a franchise of Bendigo and Adelaide Bank Limited, using the name “Bendigo Bank” and the

logo and system of operations of Bendigo and Adelaide Bank Limited. The company manages the Community Bank®

branch on behalf of Bendigo and Adelaide Bank Limited, however all transactions with customers conducted through

the Community Bank® branch are effectively conducted between the customers and Bendigo and Adelaide Bank

Limited.




a) Basis of preparation (continued)

Economic dependency - Bendigo and Adelaide Bank Limited (continued)

All deposits are made with Bendigo and Adelaide Bank Limited, and all personal and investment products are products

of Bendigo and Adelaide Bank Limited, with the company facilitating the provision of those products. All loans,

leases or hire purchase transactions, issues of new credit or debit cards, temporary or bridging finance and any other

transaction that involves creating a new debt, or increasing or changing the terms of an existing debt owed to Bendigo

and Adelaide Bank Limited, must be approved by Bendigo and Adelaide Bank Limited. All credit transactions are made

with Bendigo and Adelaide Bank Limited, and all credit products are products of Bendigo and Adelaide Bank Limited.

The company promotes and sells the products and services, but is not a party to the transaction.

The credit risk (i.e. the risk that a customer will not make repayments) is for the relevant Bendigo and Adelaide Bank

Limited entity to bear as long as the company has complied with the appropriate procedures and relevant obligations

and has not exercised a discretion in granting or extending credit.

Bendigo and Adelaide Bank Limited provides significant assistance in establishing and maintaining the Community

Bank® branch franchise operations. It also continues to provide ongoing management and operational support and

other assistance and guidance in relation to all aspects of the franchise operation, including advice in relation to:

• advice and assistance in relation to the design, layout and fit out of the Community Bank® branch

• training for the branch manager and other employees in banking, management systems and interface protocol

• methods and procedures for the sale of products and provision of services

• security and cash logistic controls

• calculation of company revenue and payment of many operating and administrative expenses

• the formulation and implementation of advertising and promotional programs

• sales techniques and proper customer relations.

The following is a summary of the material accounting policies adopted by the company in the preparation of the

financial statements. The accounting policies have been consistently applied, unless otherwise stated.

b) Revenue

Revenue is recognised when the amount of revenue can be reliably measured, it is probable that future economic

benefits will flow to the company and any specific criteria have been met. Interest and fee revenue is recognised when

earned. The gain or loss on disposal of property, plant and equipment is recognised on a net basis and is classified as

income rather than revenue. All revenue is stated net of the amount of Goods and Services Tax (GST).

Revenue calculation

Over the period from September 2013 to February 2015, Bendigo and Adelaide Bank Limited conducted a review of the

Community Bank® model, known as ‘Project Horizon’. This was conducted in consultation with the Community Bank®

network. The objective of the review was to develop a shared vision of the Community Bank® model that positions it

for success now and for the future.

The outcome of that review is that the fundamental franchise model and community participation remain unchanged.

Changes to be implemented over a three year period reflect a number of themes, including a culture of innovation,

agility and flexibility, network collaboration, director and staff development and a sustainable financial model. This will

include changes to the financial return for Community Bank® companies from 1 July 2016. A funds transfer pricing

model will be used for the method of calculation of the cost of funds, deposit return and margin. All revenue paid on

core banking products will be through margin share. Margin on core banking products will be shared on a 50/50 basis.




b) Revenue (continued)

Revenue calculation (continued)

The franchise agreement provides that three forms of revenue may be earned by the company – margin, commission

and fee income. Bendigo and Adelaide Bank Limited decides the form of revenue the company earns on different types

of products and services.

The revenue earned by the company is dependent on the business that it generates. It may also be affected by other

factors, such as economic and local conditions, for example, interest rates.

Core banking products

Bendigo and Adelaide Bank Limited has identified some Bendigo Bank Group products and services as ‘core banking

products’. It may change the products and services which are identified as core banking products by giving the

company at least 30 days’ notice. Core banking products currently include Bendigo Bank branded home loans, term

deposits and at call deposits.

Margin

Margin is arrived at through the following calculation:

Interest paid by customers on loans less interest paid to customers on deposits

plus any deposit returns i.e. interest return applied by Bendigo and Adelaide Bank Limited for a deposit,

minus any costs of funds i.e. interest applied by Bendigo and Adelaide Bank Limited to fund a loan.

Note: In very simplified terms, currently, deposit return means the interest Bendigo and Adelaide Bank Limited gets

when it invests the money the customer deposits with it. The cost of funds means the interest Bendigo and Adelaide

Bank Limited pays when it borrows the money to give a customer a loan. From 1 July 2016, both will mean the cost for

Bendigo and Adelaide Bank Limited to borrow the money in the market.

Products and services on which margin is paid include variable rate deposits and variable rate home loans. From 1 July

2016, examples include Bendigo Bank branded at call deposits, term deposits and home loans.

For those products and services on which margin is paid, the company is entitled to a share of the margin earned by

Bendigo and Adelaide Bank Limited (i.e. income adjusted for Bendigo and Adelaide Bank Limited’s interest expense

and interest income return). However, if this reflects a loss, the company incurs a share of that loss.

Commission

Commission is a fee paid for products and services sold. It may be paid on the initial sale or on an ongoing basis.

Commission is payable on the sale of an insurance product such as home contents. Examples of products and

services on which ongoing commissions are paid include leasing and Sandhurst Trustees Limited products. This

currently also includes Bendigo Bank branded fixed rate home loans and term deposits of more than 90 days, but

these will become margin products from 1 July 2016.

Fee income

Fee income is a share of what is commonly referred to as ‘bank fees and charges’ charged to customers by Bendigo

Bank Group entities including fees for loan applications and account transactions.

Ability to change financial return

Under the franchise agreement, Bendigo and Adelaide Bank Limited may change the form and amount of financial

return that the company receives. The reasons it may make a change include changes in industry or economic

conditions or changes in the way Bendigo and Adelaide Bank Limited earns revenue.




b) Revenue (continued)

Ability to change financial return (continued)

The change may be to the method of calculation of margin, the amount of margin, commission and fee income or a

change of a margin to a commission or vice versa. This may affect the amount of revenue the company receives on a

particular product or service. The effect of the change on the revenue earned by the company is entirely dependent on

the change.

The change may be to the method of calculation of margin, the amount of margin, commission and fee income or a

change of a margin to a commission or vice versa. This may affect the amount of revenue the company receives on a

particular product or service. The effect of the change on the revenue earned by the company is entirely dependent on

the change.

If Bendigo and Adelaide Bank Limited makes a change to the margin or commission on core banking products and

services, it must not reduce the margin and commission the company receives on core banking products and services

Bendigo and Adelaide Bank Limited attributes to the company to less than 50% (on an aggregate basis) of Bendigo

and Adelaide Bank Limited’s margin at that time. For other products and services, there is no restriction on the change

Bendigo and Adelaide Bank Limited may make.

Bendigo and Adelaide Bank Limited must give the company 30 days’ notice before it changes the products and

services on which margin, commission or fee income is paid, the method of calculation of margin and the amount of

margin, commission or fee income.

Monitoring and changing financial return

Bendigo and Adelaide Bank Limited monitors the distribution of financial return between Community Bank® companies

and Bendigo and Adelaide Bank Limited on an ongoing basis.

Overall, Bendigo and Adelaide Bank Limited has made it clear that the Community Bank® model is based on the

principle of shared reward for shared effort. In particular, in relation to core banking products and services, the aim is

to achieve an equal share of Bendigo and Adelaide Bank Limited’s margin.

As discussed above in relation to Project Horizon, among other things, there will be changes in the financial return

for Community Bank® companies from 1 July 2016. This includes 50% share of margin on core banking products,

all core banking products become margin products and a funds transfer pricing model will be used for the method of

calculation of the cost of funds, deposit return and margin.

The Board is yet to appreciate the full impact of the above changes on our revenue moving forward. We would

anticipate that by the time of this year’s AGM we will be able to inform our shareholders of the likely outcomes of the

new model.

The Board is continuing to work with Bendigo and Adelaide Bank Ltd to understand any potential changes to revenue

and will provide further details as appropriate in due course.

c) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable

profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively

enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent

that it is unpaid (or refundable).




c) Income tax (continued)

Deferred tax

Deferred tax is accounted for using the balance sheet liability method on temporary differences arising from

differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax

base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are

recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible

temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities

are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and

liabilities other than as a result of a business combination (which affects neither taxable income nor accounting profit).

Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the

asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted

or substantively enacted by reporting date. The measurement of deferred tax liabilities reflects the tax consequences

that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle

the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax and when the

balances relate to taxes levied by the same taxation authority and the company entity intends to settle its tax assets

and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in the Statement of Profit or Loss and Other

Comprehensive Income, except when it relates to items credited or debited to equity, in which case the deferred tax is

also recognised directly in equity, or where it arises from initial accounting for a business combination, in which case it

is taken into account in the determination of goodwill or excess.

d) Employee entitlements

Provision is made for the company’s liability for employee benefits arising from services rendered by employees to

balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts

expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year

have been measured at the present value of the estimated future cash outflows to be made for those benefits.

The company contributes to a defined contribution plan. Contributions to employee superannuation funds are charged

against income as incurred.

e) Cash and cash equivalents

For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks and investments in

money market instruments, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current

liabilities on the Balance Sheet.

f) Trade receivables and payables

Receivables are carried at their amounts due. The collectability of debts is assessed at balance date and specific

provision is made for any doubtful accounts. Liabilities for trade creditors and other amounts are carried at cost that is

the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the

company.




g) Property, plant and equipment

Plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated

depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In

the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the

amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation

is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its

estimated residual value. Leasehold improvements are depreciated at the rate equivalent to the available building

allowance using the straight line method. The estimated useful lives, residual values and depreciation method are

reviewed at the end of each annual reporting period.

The following estimated useful lives are used in the calculation of depreciation:

• leasehold improvements 40 years

• plant and equipment 2.5 - 40 years

• furniture and fittings 4 - 40 years

h) Intangibles

The franchise fee paid to Bendigo and Adelaide Bank Limited has been recorded at cost and is amortised on a straight

line basis over the life of the franchise agreement.

The renewal processing fee paid to Bendigo and Adelaide Bank Limited when renewing the franchise agreement has

also been recorded at cost and is amortised on a straight line basis over the life of the franchise agreement.

i) Payment terms

Receivables and payables are non interest bearing and generally have payment terms of between 30 and 90 days.

j) Borrowings

All loans are initially measured at the principal amount. Interest is recognised as an expense as it accrues.

k) Financial instruments

Recognition and initial measurement

Financial instruments, incorporating financial assets and financial liabilities are recognised when the entity becomes a

party to the contractual provisions of the instrument.

Financial instruments are initially measured at fair value plus transaction costs. Financial instruments are classified

and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is

transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and

benefits associated with the asset.




k) Financial instruments (continued)

Classification and subsequent measurement

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted

in an active market and are subsequently measured at amortised cost using the effective interest rate method.

(ii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable

payments, and it is the entity’s intention to hold these investments to maturity. They are subsequently measured at

amortised cost using the effective interest rate method.

(iii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified

into other categories of financial assets due to their nature, or they are designated as such by management. They

comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable

payments.

They are subsequently measured at fair value with changes in such fair value (i.e. gains or losses) recognised in

the Statement of Profit or Loss and Other Comprehensive Income. Available-for-sale financial assets are included

in non-current assets except where they are expected to be sold within 12 months after the end of the reporting

period. All other financial assets are classified as current assets.

(iv) Financial liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost

using the effective interest rate method.

Impairment

At each reporting date, the entity assesses whether there is objective evidence that a financial instrument has been

impaired. Impairment losses are recognised in the Statement of Profit or Loss and Other Comprehensive Income.

l) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not

the legal ownership are transferred to the company are classified as finance leases. Finance leases are capitalised

by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the

present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated

between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease

term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are

charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised

as a liability and amortised on a straight-line basis over the life of the lease term.

m) Provisions

Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future

sacrifice of economic benefits to other entities as a result of past transactions of other past events, it is probable

that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the

obligation.




m) Provisions (continued)

A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly

recommended on or before the reporting date.

n) Contributed equity

Ordinary shares are recognised at the fair value of the consideration received by the company. Any transaction costs

arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

o) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any

costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding

during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

p) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST), except where the

amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised

as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or

payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet. Cash flows are

included in the Statement of Cash Flows on a gross basis.

The GST components of cash flows arising from investing and financing activities which are recoverable from, or

payable to, the taxation authority are classified as operating cash flows.

Note 2. Financial risk managementThe company’s activities expose it to a limited variety of financial risks: market risk (including currency risk, fair

value interest risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The company’s overall risk

management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse

effects on the financial performance of the entity. The entity does not use derivative instruments.

Risk management is carried out directly by the board of directors.

(i) Market risk

The company has no exposure to any transactions denominated in a currency other than Australian dollars.

(ii) Price risk

The company is not exposed to equity securities price risk as it does not hold investments for sale or at fair value.

The company is not exposed to commodity price risk.

(iii) Credit risk

The company has no significant concentrations of credit risk. It has policies in place to ensure that customers

have an appropriate credit history. The company’s franchise agreement limits the company’s credit exposure to one

financial institution, being Bendigo and Adelaide Bank Limited.

(iv) Liquidity risk

Prudent liquidity management implies maintaining sufficient cash and marketable securities and the availability

of funding from credit facilities. The company believes that its sound relationship with Bendigo and Adelaide Bank

Limited mitigates this risk significantly.



Note 2. Financial risk management (continued)

(v) Cash flow and fair value interest rate risk

Interest-bearing assets are held with Bendigo and Adelaide Bank Limited and subject to movements in market

interest. Interest-rate risk could also arise from long-term borrowings. Borrowings issued at variable rates expose

the company to cash flow interest-rate risk. The company believes that its sound relationship with Bendigo and

Adelaide Bank Limited mitigates this risk significantly.

(vi) Capital management

The board’s policy is to maintain a strong capital base so as to sustain future development of the company. The

board of directors monitor the return on capital and the level of dividends to shareholders. Capital is represented by

total equity as recorded in the Balance Sheet.

In accordance with the franchise agreement, in any 12 month period, the funds distributed to shareholders shall

not exceed the distribution limit:

The distribution limit is the greater of:

(a) 20% of the profit or funds of the franchisee otherwise available for distribution to shareholders in that 12 month

period; and

(b) subject to the availability of distributable profits, the relevant rate of return multiplied by the average level of

share capital of the franchisee over that 12 month period where the relevant rate of return is equal to the

weighted average interest rate on 90 day bank bills over that 12 month period plus 5%.

The board is managing the growth of the business in line with this requirement. There are no other externally imposed

capital requirements, although the nature of the company is such that amounts will be paid in the form of charitable

donations and sponsorship. Charitable donations and sponsorship paid for the year ended 30 June 2016 can be seen

in the Statement of Profit or Loss and Other Comprehensive Income.

There were no changes in the company’s approach to capital management during the year.

Note 3. Critical accounting estimates and judgementsEstimates and judgements are continually evaluated and are based on historical experience and other factors,

including expectations of future events that may have a financial impact on the entity and that are believed to be

reasonable under the circumstances.

The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by

definition, seldom equal the related actual results.

Management has identified the following critical accounting policies for which significant judgements, estimates and

assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and

may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial

statements.

Taxation

Judgement is required in assessing whether deferred tax assets and certain tax liabilities are recognised on the

balance sheet. Deferred tax assets, including those arising from un-recouped tax losses, capital losses and temporary

differences, are recognised only where it is considered more likely than not that they will be recovered, which is

dependent on the generation of sufficient future taxable profits.



Note 3. Critical accounting estimates and judgements (continued)

Taxation (continued)

Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows.

These depend on estimates of future sales volumes, operating costs, capital expenditure, dividends and other capital

management transactions. Judgements are also required about the application of income tax legislation.

These judgements and assumptions are subject to risk and uncertainty. There is therefore a possibility that changes in

circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities

recognised on the balance sheet and the amount of other tax losses and temporary differences not yet recognised. In

such circumstances, some or all of the carrying amount of recognised deferred tax assets and liabilities may require

adjustment, resulting in corresponding credit or charge to the Statement of Profit or Loss and Other Comprehensive

Income.

Estimation of useful lives of assets

The estimation of the useful lives of assets has been based on historical experience and the condition of the asset

is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are

made when considered necessary.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the company’s share of the net

identifiable assets of the acquired branch/agency at the date of acquisition. Goodwill on acquisition is included in

intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently

if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated

impairment losses.

The calculations require the use of assumptions.

Impairment of assets

At each reporting date, the company reviews the carrying amounts of its tangible and intangible assets that have an

indefinite useful life to determine whether there is any indication that those assets have suffered an impairment loss.

If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the

impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the

consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the

estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current

market assessments of the time value of money and the risks specific to the asset for which the estimates of future

cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,

the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is

recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment

loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased

to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not

exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset

(cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless

the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation

increase.



Note 4. Revenue from ordinary activitiesOperating activities:

- services commissions 976,535 910,356

Total revenue from operating activities 976,535 910,356

Non-operating activities:

- interest received 7,530 10,813

Total revenue from non-operating activities 7,530 10,813

Total revenues from ordinary activities 984,065 921,169

Note 5. Expenses Depreciation of non-current assets:

- plant and equipment 1,596 2,118

- leasehold improvements 6,249 6,908

- motor vehicles 4,048 3,693

Amortisation of non-current assets:

- franchise agreement 2,325 2,325

- franchise renewal fee 11,484 11,625

25,702 26,669

Finance costs:

- interest paid - 379

Bad debts 333 1,684

Note 6. Income tax expenseThe components of tax expense comprise:

- Current tax 25,220 28,549

- Movement in deferred tax 7,921 (2,952)

- Under/over provision in respect to prior years (2,744) -

- Adjustment to deferred tax to reflect change to tax rate in future periods (244) 52

30,153 25,649

The prima facie tax on profit from ordinary activities before income tax is

reconciled to the income tax expense as follows

Operating profit 102,084 85,324

Prima facie tax on profit from ordinary activities at 28.5% (2015:30%) 30,534 25,597

2016 2015 $ $



Note 6. Income tax expense (continued)

Add tax effect of:

- timing difference expenses (5,314) 2,952

25,220 28,549

Movement in deferred tax 7,921 (2,952)

- Under/over provision in respect to prior years (2,744) -

Adjustment to deferred tax to reflect change of tax rate in future periods (244) 52

30,153 25,649

Note 7. Cash and cash equivalents Cash at bank and on hand 58,224 90,770

Term deposits 297,544 297,544

355,768 388,314

Note 7.(a) Reconciliation to cash flow statement

The above figures reconcile to the amount of cash shown in the statement of

cash flows at the end of the financial year as follows:

Cash at bank and on hand 58,224 90,770

Term deposits 297,544 297,544

355,768 388,314

Note 8. Trade and other receivables Trade receivables 44,758 27,703

Prepayments 892 5,238

Other receivables and accruals 8,310 6,800

53,960 39,741

Note 9. Property, plant and equipmentLeasehold improvements

At cost 93,016 93,016

Less accumulated depreciation (61,341) (55,092)

31,675 37,924

2016 2015 $ $



Note 9. Property, plant and equipment (continued)

Plant and equipment

At cost 54,377 45,463


16,273 8,956

Motor vehicles

At cost 54,199 29,540


43,130 22,519

Total written down amount 91,078 69,399

Movements in carrying amounts:

Leasehold improvements

Carrying amount at beginning 37,924 26,369

Additions - 18,463

Less: depreciation expense (6,249) (6,908)

Carrying amount at end 31,675 37,924

Plant and equipment


Additions 8,913 -



Motor vehicles


Additions 24,659 -




Note 10. Intangible assets Franchise fee

At cost 82,968 82,968

Less: accumulated amortisation (73,927) (71,625)

9,041 11,343

2016 2015 $ $



Note 10. Intangible assets (continued)

Renewal processing fee

At cost 114,839 114,839

Less: accumulated amortisation (69,633) (58,126)

45,206 56,713

Goodwill on purchase of agency

At cost 8,402 8,402


Note 11. TaxCurrent:

Income tax payable 6,284 4,411

Non-Current:

Deferred tax assets

- accruals 990 983

Deferred tax liability

- property plan and equipment 7,684 -

Net deferred tax asset/(liability) (6,694) 983

Movement in deferred tax charged to Statement of Profit or

Loss and Other Comprehensive Income. 7,677 (2,900)

Note 12. Trade and other payables Current:

Trade creditors 1,970 7,628

Other creditors and accruals 12,763 78,354

14,733 85,982

Note 13. Borrowings Current:

Chattel mortgage 17 8,756 -

Less: Unexpired interest 955 -

7,801 -

Note 2016 2015 $ $



Note 13. Borrowings (continued)

Non-Current:

Chattel mortgage 17 16,784 -

Less: Unexpired interest 656 -

16,128 -

Finance Lease is repayable at $729.74 per month with the final

payment due 23 April 2019. Interest is recognised at an average

rate of 4.40%. The loan is secured by a fixed and floating charge

over the company’s assets.

Note 14. Contributed equity 594,910 ordinary shares fully paid (2015: 594,910) 594,910 594,910

Less: equity raising expenses (36,553) (36,553)

558,357 558,357

Rights attached to shares

(a) Voting rights

Subject to some limited exceptions, each member has the right to vote at a general meeting.

On a show of hands or a poll, each member attending the meeting (whether they are attending the meeting in

person or by attorney, corporate representative or proxy) has one vote, regardless of the number of shares held.

However, where a person attends a meeting in person and is entitled to vote in more than one capacity (for

example, the person is a member and has also been appointed as proxy for another member) that person may only

exercise one vote on a show of hands. On a poll, that person may exercise one vote as a member and one vote for

each other member that person represents as duly appointed attorney, corporate representative or proxy.

The purpose of giving each member only one vote, regardless of the number of shares held, is to reflect the

nature of the company as a community based company, by providing that all members of the community who have

contributed to the establishment and ongoing operation of the Community Bank® branch have the same ability to

influence the operation of the company.

(b) Dividends

Generally, dividends are payable to members in proportion to the amount of the share capital paid up on the shares

held by them, subject to any special rights and restrictions for the time being attaching to shares. The franchise

agreement with Bendigo and Adelaide Bank Limited contains a limit on the level of profits or funds that may be

distributed to shareholders. There is also a restriction on the payment of dividends to certain shareholders if they

have a prohibited shareholding interest (see below).

(c) Transfer

Generally, ordinary shares are freely transferable. However, the directors have a discretion to refuse to register a

transfer of shares.

Subject to the foregoing, shareholders may transfer shares by a proper transfer effected in accordance with the

company’s constitution and the Corporations Act 2001.

Note 2016 2015 $ $



Note 14. Contributed equity (continued)

Prohibited shareholding interest

A person must not have a prohibited shareholding interest in the company.

In summary, a person has a prohibited shareholding interest if they control or own 10% or more of the shares in the

company (the “10% limit”).

As with voting rights, the purpose of this prohibited shareholding provision is to reflect the community-based nature of

the company.

Where a person has a prohibited shareholding interest, the voting and dividend rights attaching to the shares in which

the person (and his or her associates) have a prohibited shareholding interest, are suspended.

The board has the power to request information from a person who has (or is suspected by the board of having) a legal

or beneficial interest in any shares in the company or any voting power in the company, for the purpose of determining

whether a person has a prohibited shareholding interest. If the board becomes aware that a member has a prohibited

shareholding interest, it must serve a notice requiring the member (or the member’s associate) to dispose of the

number of shares the board considers necessary to remedy the breach. If a person fails to comply with such a notice

within a specified period (that must be between three and six months), the board is authorised to sell the specified

shares on behalf of that person. The holder will be entitled to the consideration from the sale of the shares, less any

expenses incurred by the board in selling or otherwise dealing with those shares.

In the constitution, members acknowledge and recognise that the exercise of the powers given to the board may cause

considerable disadvantage to individual members, but that such a result may be necessary to enforce the prohibition.

2016 2015 $ $

Note 15. Accumulated lossesBalance at the beginning of the financial year (73,855) (88,912)

Net profit from ordinary activities after income tax 71,931 59,675

Dividends paid or provided for (44,618) (44,618)

Balance at the end of the financial year (46,542) (73,855)

Note 16. Statement of cash flows Reconciliation of profit from ordinary activities after tax to net cash

provided by operating activities

Profit from ordinary activities after income tax 71,931 59,675

Non cash items:

- depreciation 11,893 12,719

- amortisation 13,809 13,950



Note 16. Statement of cash flows (continued)

Changes in assets and liabilities:

- (increase)/decrease in receivables (14,219) 10,109

- (increase)/decrease in other assets 983 11,509

- increase/(decrease) in payables (3,193) 13,668

- increase/(decrease) in current tax liabilities 8,567 2,494

Net cash flows provided by operating activities 89,771 124,124

Note 17. Leases Finance lease commitments

Payable - minimum lease payments:

- not later than 12 months 8,757 -

- between 12 months and 5 years 16,784 -

Minimum lease payments 25,541 -

Less future finance charges 1,611 -

Present value of minimum lease payments 23,930 -

Finance Lease is repayable at $729.74 per month with the final payment due 23 April 2019. Interest is recognised at

an average rate of 4.40%. The loan is secured by a fixed and floating charge over the company’s assets.

2016 2015 $ $

Operating lease commitments

Non-cancellable operating leases contracted for but not capitalised in the

financial statements

Payable - minimum lease payments:

- not later than 12 months 42,374 31,492

- between 12 months and 5 years 124,305 124,841

166,679 156,333

The property lease is a non-cancellable lease with a five-year term, with rent payable monthly in advance. The extension

option has been taken up in early July 2015 for a further five years. There has been an additional five year lease for

the Nagambie agency which commenced in April 2015.

2016 2015 $ $



Note 18. Auditor’s remuneration Amounts received or due and receivable by the auditor of the company for:

- audit and review services 5,100 5,050

- share registry services 3,585 3,561

- other non audit services 2,490 2,467

11,175 11,078

Note 19. Director and related party disclosuresThe names of directors who have held office during the financial year are:

Stephen Roger Trompp Rachel Alice Patterson

Ian George Rohde Colin Bernard Stobaus (Appointed 9 May 2016)

Barry Maxwell Cail Simon Osicka (Resigned 4 July 2016)

Gregory Ian Speirs Megan Louise Anderson (Resigned 9 January 2016)

No director or related entity has entered into a material contract with the company. No director’s fees have been paid

as the positions are held on a voluntary basis.

Transactions between related parties are on normal commercial terms and conditions no more favourable than those

available to other parties unless otherwise stated.

2016 2015 $ $

Transactions with related parties:

Barry Cail, in the capacity of part-owner of Bendigo Copy Centre, supplied

printing services to the value of 840 720

2016 2015

Directors’ shareholdings

Stephen Roger Trompp 1,700 -

Ian George Rohde - -

Barry Maxwell Cail 2,001 2,001

Gregory Ian Speirs 5,000 5,000

Rachel Alice Patterson - -

Colin Bernard Stobaus (Appointed 9 May 2016) 3,001 -

Simon Osicka (Resigned 4 July 2016) - 1,000

Megan Louise Anderson (Resigned 9 January 2016) - -

2016 2015 $ $



Note 20. Dividends paid or provideda. Dividends paid during the year

Current year dividend

100% (2015: 100%) franked dividend - 7.5 cents (2015: 7.5 cents) per share 44,618 44,618

The tax rate at which dividends have been franked is 30% (2015: 30%).

b. Franking account balance

Franking credits available for subsequent reporting periods are:

- franking account balance as at the end of the financial year 39,204 37,722

- franking credits that will arise from payment of income tax as

at the end of the financial year 5,824 4,412

- franking debits that will arise from the payment of dividends recognised

as a liability at the end of the financial year - -

Franking credits available for future financial reporting periods: 45,028 42,134

- franking debits that will arise from payment of dividends proposed or declared

before the financial report was authorised for use but not recognised as a

distribution to equity holders during the period - -

Net franking credits available 45,028 42,134

Note 21. Key Management Personnel DisclosuresNo director of the company receives remuneration for services as a company director or committee member.

There are no executives within the company whose remuneration is required to be disclosed.

2016 2015 $ $

Note 22. Earnings per share(a) Profit attributable to the ordinary equity holders of the company used in

calculating earnings per share 71,931 59,675

Number Number

(b) Weighted average number of ordinary shares used as the denominator

in calculating basic earnings per share 594,910 594,910

Note 23. Events occurring after the reporting dateThere have been no events after the end of the financial year that would materially affect the financial statements.

2016 2015 $ $



Note 24. Contingent liabilities and contingent assetsThere were no contingent liabilities or contingent assets at the date of this report to affect the financial statements.

Note 25. Segment reportingThe economic entity operates in the service sector where it facilitates Community Bank® services in Heathcote and

Nagambie and their surrounding districts, Victoria pursuant to a franchise agreement with Bendigo and Adelaide Bank

Limited.

Note 26. Registered office/Principal place of businessThe entity is a company limited by shares, incorporated and domiciled in Australia. The registered office and principal

place of business is:

Registered Office Principal Place of Business

Shop 2, 119 High Street Shop 2, 119 High Street

Heathcote VIC 3523 Heathcote VIC 3523

Note 27. Financial instruments

Financial Instrument Composition and Maturity Analysis

The table below reflects the undiscounted contractual settlement terms for all financial instruments, as well as the

settlement period for instruments with a fixed period of maturity and interest rate.

Financial instrument

Floating interestFixed interest rate maturing in Non interest

bearingWeighted average1 year or less Over 1 to 5 years Over 5 years

2016$

2015$

2016$

2015$

2016$

2015$

2016$

2015$

2016$

2015$

2016%

2015%

Financial assets

Cash and cash equivalents

58,224 90,520 297,544 297,544 - - - - - 250 1.87 2.92

Receivables - - - - - - - - 44,758 27,703 N/A N/A

Financial liabilities

Payables - - - - - - - - 1,970 7,628 N/A N/A

Net Fair Values

The net fair values of financial assets and liabilities approximate the carrying values as disclosed in the balance sheet.

The company does not have any unrecognised financial instruments at the year end.



Note 27. Financial instruments (continued)

Credit Risk

The maximum exposure to credit risk at balance date to recognised financial assets is the carrying amount of those

assets as disclosed in the balance sheet and notes to the financial statements.

There are no material credit risk exposures to any single debtor or group of debtors under financial instruments entered

into by the economic entity.

Interest Rate Risk

Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument

will fluctuate due to changes in market interest rates. Interest rate risk arises from the interest bearing financial assets

and liabilities in place subject to variable interest rates, as outlined above.

Sensitivity Analysis

The company has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This

sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in

interest rates.

As at 30 June 2016, the effect on profit and equity as a result of changes in interest rate, with all other variables

remaining constant would be as follows:

2016 2015 $ $

Change in profit/(loss)

Increase in interest rate by 1% 3,558 3,881

Decrease in interest rate by 1% 3,558 3,881

Change in equity

Increase in interest rate by 1% 3,558 3,881

Decrease in interest rate by 1% 3,558 3,881


Directors’ declarationIn accordance with a resolution of the directors of Heathcote & District Financial Services Limited, we state that:

In the opinion of the directors:

(a) the financial statements and notes of the company are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the company’s financial position as at 30 June 2016 and of its performance for the

financial year ended on that date; and

(ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional

reporting requirements; and

(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become

due and payable.

This declaration is made in accordance with a resolution of the board of directors.

Stephen Roger Trompp,

Chairman

Signed on the 8th of September 2016.


Independent audit report


Independent audit report (continued)

bendigobank.com.au

Heathcote & District Community Bank® Branch Shop 2/119 High Street, Heathcote VIC 3523Phone: (03) 5433 3115 Fax: (03) 5433 3442

Franchisee: Heathcote & District Financial Services LimitedShop 2/119 High Street, Heathcote VIC 3523Phone: (03) 5433 3115 Fax: (03) 5433 3442ABN: 44 112 376 986

www.bendigobank.com.au/heathcote (BNPAR16002) (06/16)

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